Talking Numbers

Why Wall Street and Main Street see stocks so differently

Talking Numbers

Half of all Americans think the stock market is down this year. Are most of them right in thinking the markets will be down in 2014?

The stock market may be up 25% this year but the general public doubts 2014 will see similar returns. In fact, a new poll suggests most Americans think the market will either be flat or down next year.

The survey done by the Associated Press-GfK shows that only 14% of Americans think the markets will be up next year. About 40% think the market will be flat while 39% think it will drop. Another 5% think it will outright crash (rounding errors explain why these numbers don't add up to 100%).

(Read more: Most Americans see stock market either flat or lower by end of 2014)

Some of the general public's negative sentiment may be because they question the market's ability to sustain its recent successes; half of all those surveyed knew that the market was up in 2013. Since its post-financial crisis bottom in March 2009, the benchmark S&P 500 index has climbed 164%, or at an average annual rate of 22.6%. That includes 2011, when the markets were flat for the year. Since January of this year, the S&P 500 is up 25%.

Shockingly, 32% of those surveyed thought the market was flat (19% of self-described investors) and 16% actually thought the market was down (including 8% of those saying they were investors). In other words, nearly half of Americans have no idea that stocks are having their best year in a decade.

It may also be possible that the public is conflating the stock market with, say, the job market. While official unemployment is now down to 7.0%, the labor participation rate – the rate at which of all eligible workers are actually working – is down to about 63%, the lowest it's been since the late 1970s.

That said, the general public's influence on stocks is limited (excluding, of course, consumer sentiment). The share of retail investors' ownership of the overall market is down to 20% from about a third a little more than a decade ago.

(Read: Despite budget deal, don't discount Washington crisis in '14)

CNBC contributor Gina Sanchez, founder of Chantico Global, says the general public may be right about the markets being flat next year. She believes there are three signs pointing to a flat 2014. First is that the markets are up disproportionately to the increase in earnings.

"We've had about a 27% rise on about 5% to 6% earnings this past year," says Sanchez. "That says that we've taken some of our expectations from 2014 and we've priced them into this year."

Sanchez also anticipates higher rates will hurt the housing sector but expected volatility has generally been low. The net result, she says, is a flat market.

Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson, says he's "one of those strategists that happens to be optimistic, if not bullish."

Surprisingly, one reason Ross is optimistic is that he sees a drop coming in the next several months.

"It's a virtual certainty that we're going to get a double-digit correction in the market at some point next year," says Ross.

For Ross, that's something that may be welcomed. "Back in 1987, we had a 33% correction," says Ross. "The market went up another 600% over the next 13 years or so. So, you want to look at that type of pullback as a buying opportunity when the primary trend is higher as it is today."

Though he sees a correction ahead, Ross isn't too worried because he also thinks the markets will then trade about 18% higher from its current levels afterwards.

"It's almost a certainty but, that's okay," says Ross. "That's what markets do."

To see the rest of Sanchez's fundamental analysis and for Ross' charts on what's next for the markets, watch the video above.

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